A Beginner’s Guide to Home Inspection and Appraisal
Just kidding. If you want answers to those questions and many more-well, a few more-then consider this article the music of information about appraisals and play on. Simply put, a home appraisal is a judgment of the value of a property. But far from being just some guy’s opinion, this judgment is arrived at following a sophisticated process of analytical comparison. An appraisal is arrived at through analysis of neutral data which the appraiser delivers in a formal report that provides an expert, objective judgment of market value. Typically, an appraiser arrives as this judgment by use of one or more of three unique techniques. The Cost Method considers the estimated replacement costs of improvements, minus such other factors as material deterioration, and then adds in the value of the property. The Sales Comparison Method makes a comparison to similar properties in close proximity that have recently been sold. Typically this method is the most accurate for assessing a residential property’s actual value. The Income Method is used for those properties that produce income. This approach speculates what the investor would be willing to pay based on the amount of income the property produces.
Well, let’s see, I guess that about answers all your questions. Oh wait, you were wondering if there’s any difference between a home appraisal and a home inspection. Well, here’s the skinny. An appraisal judges the value of the entire property, not just the domicile. And by domicile I mean, well, you know. House. A home inspection, on the other hand, evaluates the structural and mechanical conditions of the house itself, including such factors as the conditions of the roof, foundation, heat/air systems, plumbing and electrical systems, walls, floors, windows, and doors, etc. Now you may also be wondering if a home appraisal is the same thing as a Comparative Market Analysis (CMA). Well, I mean you might be wondering that if you’re like some kind of real estate geek. A CMA is a much less formal evaluation of market value that is done in relation to establishing a rightful listing price for the property. As such, a CMA utilizes far less reliable market trends, and is created by a real estate agent whose income is directly connected to the value of the home, whereas an appraisal is a much more concrete analysis of aspects relating to property value.
Is there anything you can do to prepare for an appraisal? And, if so, should you? Well, to answer the second question first, merely because I love to be confusing, yes. Now to the first question. The first stage of a home appraisal is an inspection. Yes, we’re back to the home inspection versus home appraisal question. Are they the same thing? No. Even so, a home inspection is part of the appraisal process. Go figure.
A home inspection involves the appraiser coming to your home with a camera and, probably, a measuring tape. While inside your house the appraiser will measure and confirm the floor plan and all other aspects of the condition of your home. There are several things you can do-nay, should do-to facilitate this process. For one thing, provide the dude with easy access to both the interior and the exterior of the house, including basements, attics, furnaces, water heaters, and all that rot. In addition, remove or clear away anything that interferes with the measurement of the structure. The whole process will proceed in a much smoother and easier way if you prepare yourself beforehand with some paperwork the appraiser is likely to ask for, such as the survey of your house and property, the deed or title report and any recent tax bill. You also might want to go ahead and make a list of any personal property that you intend to sell with the house. And for God’s sake, provide the man with a copy of the original plans of the house.
Since appraisals are typically ordered by the lender, the homebuyer usually pays the cost of getting an appraisal, but the cost is usually rolled into the closing costs so you really won’t even be aware you’re paying for it. The report goes to the lender and he retains all rights to it, though the homebuyer more often than is provided a copy. If you don’t get one, you can request it. Just don’t use it for any reason without getting permission from the lender because, as pointed out, it is the lender who retains the actual rights to the report.
Under certain circumstances, it is the homeowner himself who orders an appraisal. In these cases, the homeowner is allowed to use the appraisal for any reason he sees fit, unless the agreement states otherwise. Read the contract carefully, however, because in many cases it will state that it is the appraiser who determines how the appraisal can be used.
Finally, there is the question of whether you can do anything before the appraisal to significantly increase your home’s value. A lot of what determines the addition of value is based on where you live. For instance, adding an air conditioner in Minneapolis probably won’t do much and adding a furnace in Miami likewise. On the other hand, installing central air in Miami will probably spike the value of the house. Take a guess on what specific type of room renovation adds the most value to a home. If you guessed bedroom congratulations: you will the award for being the most clueless. No, if you really want to add value to your home, then get hooked up with one of those home improvement shows and get a kitchen makeover. Stat! One recent survey found an average 88% return of investment on homes with remodeled kitchens. Bathroom remodeling returns almost as much value at 85%.
